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Don't be embarrassed to ask questions of people who service your benefit plans, an attorney says.
Asking questions and getting answers you understand will reduce the risk of being sued if you are a trustee of a benefit plan who hires outside vendors for help with the plan administration, such as a vendor to provide investment advice.
"They work for you," says David Levin, managing partner for the Washington law firm of Reish & Luftman. "The only foolish question is the one that is not asked."
Mr. Levin discussed exposures arising from the management of plans governed by the Employee Retirement Income Security Act of 1974 during a session last week at the annual Risk & Insurance Management Society Inc. conference in Atlanta.
"What do you call a trustee who never asks questions?" he asked. "A defendant in a lawsuit."
In addition to asking questions, plan sponsors need to maintain written records and insist on written agreements with service providers, Mr. Levin recommended.
Another item that should be put in writing is a plan's investment guidelines, he said.
Few suits involve the intentional breach of investment guidelines, Mr. Levin said. Most suits are about imprudent investments, those that simply went bad. But, a company can minimize even those few suits by maintaining written guidelines on how the plan's assets are to be invested and following those guidelines, he said.
"As long as you are procedurally prudent, you are not a guarantor," he said.
Besides establishing the law that governs pension and welfare plans, ERISA pre-empts all state laws that relate to plans. "This federal statute cleared the way," Mr. Levin said. "If the federal statute says what to do, you don't pay attention to what the state law says."
Both the language of ERISA and U.S. Supreme Court opinions have interpreted the meaning of state law broadly to include practically all state laws and regulations. Some exceptions to ERISA pre-emption written into the law are state banking, insurance and criminal laws.
"Congress wanted a nation of uniform law," so that plan administrators could implement nationwide plans without having to alter them to conform with each state's laws, he explained.
But the longstanding view of ERISA pre-emption may be changing.
Mr. Levin said that a recent Supreme Court opinion contained a concurring opinion by Justices Antonin Scalia and Ruth Bader Ginsburg saying that the definition of "related" to a benefit plan should be re-examined. Previous opinions interpreted "related" broadly, eliminating numerous state law claims only slightly related to benefit plans.
"So, if you're a plaintiff's lawyer and last year you brought an ERISA lawsuit and you brought a bunch of claims that were pre-empted, now you might prick up your ears because of the opinion," he said.
But its effect, if any, on pre-emption won't be known for a few years, he added.
Mr. Levin also described what he calls the "ERISA gap." Because of ERISA's pre-emption provision, nearly all claims in a lawsuit based on state common law are dismissed, leaving only a case under ERISA. Mr. Levin said the plaintiff often is then left without any remedy because ERISA only will award successful plaintiffs their lost benefits. At these times, he said, plaintiffs frequently argue that the judge should allow the suit to proceed or the plaintiff could not receive compensation for their injury.
This generally fails, he said. "This is called the ERISA gap," he said. "The claim falls through the cracks. There is no remedy."
Suits asserting there is a federal common law persist and sometimes get serious consideration by courts because "the only ones who know less about ERISA than lawyers who bring ERISA suits are judges," he said.
Another common type of ERISA suit occurs when an employee is told pension benefits are higher than stated in the summary plan description. When plan participants don't receive these higher benefits, they sue for them, even though ERISA states the benefits are determined by the plan language and not the oral statement. "These claims do not fly," he said.
But when the question concerns welfare benefits, such as group health care plans, such suits can succeed. To prevent this the benefits much be clearly communicated. "Make sure what you write about welfare benefits is in plain English," he said.
Prompted by a question from an attendee, Mr. Levin also supplied advice on dealing with a tricky situation. Sometimes a health insurance company refuses to allow a company's benefit department to alter the benefit plan descriptions it provides because they contain the approved language. But the approved language might not be as clear or non-technical as the benefit manager want.
To resolve this problem, Mr. Levin recommends that two versions be sent to plan participants. One being the official plan from the insurance company, and another containing language the benefit manager wants that makes it clear to the average plan participant.
"Plain English goes a long way," he said. "What's in the plan should be able to be understood by common, everyday humans."
The session's moderator was Bob Bridges, director of risk management for Randstad Staffing Services in Atlanta.